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4 December 2019

Germany defines battle lines between MNO and private models for industrial 5G

At an event in London last week, entitled Private Networks in a 5G World, Vodafone reiterated its opposition to Germany’s decision to reserve spectrum for industrial use, a policy which is likely to prove influential as other regulators start to consider industrial requirements for 5G.

The German regulator, BNetza, has set aside 100 MHz of spectrum in the 3.7-3.8 GHz band, with 10-year licences allocated on demand, with preference going to Industrie 4.0 or agricultural and forestry applications. This policy encountered fierce opposition from the MNOs, which claim the strategy inflated spectrum prices in the 2019 5G auction and will make it harder for them to meet their coverage obligations.

Deutsche Telekom has already complained that the high prices it paid for 5G licences forced it to cut its dividend in the third quarter from €0.70 ($0.78) last year to €0.60 ($0.67) per share this year. Last month, CEO Timotheus Höttges blamed this decision on “unexpectedly high costs for the mobile spectrum auction in Germany, partly as a result of the artificial spectrum “. DT has been fiercely critical of the regulator’s policy of earmarking midband spectrum for industrial and local usage, including private networks, leaving less available for MNOs. DT spent €2.2bn ($2.4bn) on new licenses, and its net debt has risen to €78.8bn ($87.3bn) as of the end of September, from €55.5bn ($61.5bn) a year earlier.

At the conference, Vodafone’s head of enterprise public policy, Robert MacDougall, echoed DT’s views, saying: “Our concern is that by taking spectrum out of a national auction you are creating scarcity. Our view is that in Germany it will create a consumer welfare loss.”

MacDougall was, however, better disposed to UK regulator Ofcom’s approach to making spectrum available to local, industrial and small business users, because it relies more on sharing between MNOs and third parties, rather than excluding the operator.

The UK is proposing two schemes – sharing of spectrum on a localized basis with incumbents; and opening several bands, including 1.8 GHz, 2.3 GHz, 3.8-4.2 GHz and 24.25-26.5 GHz, for low cost shared access. The latter would support industrial users, which could use the spectrum on a first come first served basis, coordinated by a spectrum management framework administered by Ofcom.

“Ofcom took an approach to achieve similar policy objectives to Germany around innovation and rural coverage and yet got different outcomes,” MacDougall said. “We support the Ofcom initiative and are working with neutral host operators on spectrum sharing and leasing. That is a preferable approach from a policy point of view.”

The operators can complain all they like, but in many countries, they are not succeeding in convincing enterprises that they are the best route to high quality cellular connectivity. Companies are already lining up to apply for the German industrial licences. Bosch was one of the first to indicate it would seek spectrum to support campus networks and its R&D center.

And last week, Siemens said it had worked with Qualcomm to roll out a private 5G Standalone network in a test center in Nuremberg, Germany. The proof of concept uses the 3.7-3.8 spectrum and a localized 5G core, to connect Simatic control systems and devices. Vehicle makers can see automated guided vehicles (AGVs) interacting live in the center.

The aim is to “drive forward the development and technical implementation of private 5G networks in the industrial sector”, according to Eckard Eberle, CEO of process automation at Siemens.

Many industrial organizations are not waiting for 5G, but are already starting to deploy optimized cellular connectivity based on private LTE. One of the world’s largest private mobile networks is at London’s Heathrow Airport, which hired systems integrator SITA, and UK Broadband, then an independent fixed wireless access provider (now acquired by Three UK, bringing the MNO a sizeable chunk of 3.5 GHz spectrum and the opportunity to expand its enterprise business in future).

“MNOs have concentrated on the public and consumers and not really on the industry and that led us to look at smaller players,” Paul Crisp, head of infrastructure design at Heathrow, told the London conference. “We didn’t necessarily want to use public players that couldn’t really give high SLAs.”

So behind the angry bluster, MNOs need to engage with enterprise desire for networks they can configure and control, if they are not to be squeezed out of the main source of future revenue growth for 5G. Traditional vertical market network deployers and integrators – some from the WiFi world – would be keen to take pole position in the sectors they know well; but others will also compete for this business, at the potential expense of the telco.

Pure-play neutral hosts, webscale companies and the network OEMS could all turn into new competitors for the MNOs – Nokia said recently that it supports over 120 private networks from platforms such as its Cloud Core and its Wings IoT system. Most of these still involve an MNO, and the OEMs will be loath to antagonize their largest customers, but in future, they may become more willing to sacrifice their traditional clients in the quest for new ones with higher growth potential.

Antje Williams, DT’s SVP of 5G campus networks, is charged with ensuring that the German telco remains an important part of the industrial landscape. “We never made money from this before,” she acknowledged at the London conference. “It might not be billions, but we think this is an opportunity that is close to the existing business we have.” In particular, DT could combine its 3.6 GHz spectrum with the industrial band in 3.7-3.8 GHz, to provide a superior experience to that of the pure private operator, she argued, and would also be able to use other, lower frequency spectrum assets to improve coverage and wide area roaming.